Critical Access Hospitals (CAHs) were established to address a significant challenge in the American healthcare system: ensuring medical access in remote areas. The designation was created by the Balanced Budget Act of 1997 following a period of financial instability and closures among small, rural healthcare facilities. By offering a different operational and financial model, CAHs provide essential, immediate healthcare services to populations that might otherwise be isolated from medical care. This program recognizes the unique difficulties of operating a small hospital where patient volume alone cannot sustain a facility.
Defining the Mandatory Criteria
A facility must meet several strict federal requirements to obtain the Critical Access Hospital designation under the Medicare Rural Hospital Flexibility Program. The hospital must be located in a rural area, typically defined as being outside of a Metropolitan Statistical Area. The facility must also maintain a limit of 25 or fewer inpatient beds, which can be used for both acute care and post-acute skilled nursing services.
The operational focus of a CAH is on short-term stays, requiring the annual average length of stay for acute care patients to be 96 hours, or four days, or less. This limitation ensures the hospital remains focused on stabilization and treatment for less complex conditions, transferring patients who require extended or specialized care. CAHs must also comply with specific distance requirements from other hospitals.
Generally, a facility must be located more than 35 miles from the nearest hospital or another CAH when using primary roads for travel. This distance reduces to 15 miles if the hospital is situated in mountainous terrain or an area where only secondary roads are available. A historical exception exists for facilities designated as “necessary providers” before January 1, 2006, which allows some hospitals that do not meet the current distance rules to maintain the CAH status.
Operational Focus and Required Services
The operational model of a Critical Access Hospital centers on providing immediate patient stability and community-level primary care. A requirement for all CAHs is the provision of 24-hour emergency care services seven days a week. This ensures residents of the surrounding remote area have access to immediate medical attention for trauma or sudden illness.
Once a patient is admitted, the primary goal is rapid stabilization and either discharge or transfer to a larger facility if a higher level of care is necessary. To maximize the utility of their limited bed count, CAHs are permitted to use “swing beds,” a flexible designation that allows the same bed to transition between acute care and post-hospital skilled nursing care. This feature is valuable in rural areas where dedicated skilled nursing facilities may be nonexistent or too distant.
The operational flexibility extends to staffing, allowing CAHs to utilize mid-level practitioners, such as physician assistants and nurse practitioners, to a greater extent. This approach helps manage staffing demands in locations where recruiting a full complement of physicians is challenging.
How Critical Access Hospitals Are Funded
The financial stability of Critical Access Hospitals is secured through a unique payment methodology established by the federal government. Unlike larger hospitals, which are reimbursed through the standard Medicare prospective payment system (PPS), CAHs are exempt from this model. The PPS system pays a predetermined rate for services, which can be financially challenging for low-volume facilities.
Instead, CAHs are reimbursed based on Cost-Based Reimbursement (CBR) for Medicare services. This system pays the hospital 101% of its actual, allowable costs for providing care to Medicare beneficiaries.
This funding mechanism removes the financial disincentive for operating a hospital in an area with a small patient base. This unique financial structure makes the strict operational and distance criteria necessary for the program’s integrity and sustainability.